Hong Kong’s monetary authority steps in for the second day to douse city’s overheating currency as rate gap widens

Hong Kong’s monetary authority stepped into the financial markets for the second day running as higher rates at the city’s banks attracted capital inflows, propelling the local dollar to the top of its trading range against the US dollar.

The Hong Kong Monetary Authority (HKMA), as the city’s de facto central bank is called, sold HK$1.55 billion (US$200 million) worth of Hong Kong dollars on Tuesday to bring the exchange rate back within a trading band, after the local currency changed hands at the top end of the band at HK$7.7500 per dollar.

The authority intervened in the foreign exchange market again on Wednesday, selling HK$2.79 billion (US$360 million) at 7.7500 to each US dollar.

The two interventions, for a combined HK$4.34 billion, are aimed at stemming inflows of hot money into the city.

The interventions raise HKMA’s aggregate balance – the sum of balances on clearing accounts maintained by banks with the monetary authority – to HK$63.42 billion. 

“The strengthening of Hong Kong dollar’s exchange rate was driven by increases in market carry-trade activities and equity-related demand for Hong Kong dollars,” said HKMA chief executive Eddie Yue Wai-man in a statement after the intervention on Tuesday.